The
situation in the markets is speeding up. The recently appointed finance
minister in the United Kingdom Kwasi Kwarteng saw his last day in office at the
end of last weekafter failing to justify unfounded proposed tax cuts. An
experienced conservative, Jeremy Hunt, took over the finance minister’s office
on October 14 and it seems he hit it off immediately with the Governor of the
Bank of England (BoE) Andrew Baily.
The new
minister has started off strong. He already promised to accelerate plans to
calm down U.K.’s debt market and scrapped the tax cutting strategy of Prime
Minister Liz Truss. He is going to offer his own vision of the fiscal policy in
the British Isles. It seems that he also has the extended support of BoE’s
Governor Mr. Hunt and this may please the markets too, at least for a while. So
a threat of possible debt market turmoil in the U.K. seems to be deeply muted this
week. Investors are likely to switch to Q3 corporate reporting in the United
States and the running Congress of the ruling Communist Party in China.
Corporate reporting is
of less interest since no financial results could move the market from the
downside track towards a recession. Even if market stars like Tesla and Netflix
deliver outstanding Q3 reports following positive reporting of the U.S. banking
sector, it will only postpone the upcoming downturn impact.
China’s current track
is much more interesting to follow as its leader Xi Jinping outlined the country’s
superpower ambitions as it is stepping into the third phase of developing a
modern China with technology and innovation as a priority. He vowed that the
country will achieve the degree of “socialist modernisation” by 2035 and become
a “powerful modern socialist country” by the middle of this century. This is
where Taiwan, with its vast semiconductor production base, comes into play and
is seen to be very important. The United States has to respond to this as it cannot
allow China to take over its global economic and political leadership.
Meanwhile, this week the framework of China’s action plan towards technological
dominance could be shaped.
The S&P 500 broad
market index continues within the aggressive upside pattern with targets at 3850-3950
despite the sell-off last week. The market situation may remain mostly
unchanged by Thursday if Jeremy Hunt succeeds in calming down the market crowd.
The S&P 500 index may remain within 3600-3700 points. Long-term targets,
however, are still deep down at 2000-2200 points.
Brent crude
prices continue to sit above $90 per barrel after the decision of the
Organisation of the Petroleum Exporting Countries and allies (OPEC+) to cut
production by 2 million barrels per day. But recession expectations are strongly
weighing down market sentiment. The nearest support is located at $88-90 per
barrel and this week we may witness a test of this support. If it is broken a
deep free fall of crude prices could be initiated. Mid-term extreme targets at
$50-65 per barrel of Brent crude by November are intact.
Gold prices
are being dragged down circling around $1650 per troy ounce, which is below the
resistance zone at $1680-1700. The decline of gold prices may accelerate at any
moment by the end of October. Nevertheless, it is very risky right now to add
new short positions amid strong geopolitical uncertainties that may push gold
prices up.
EURUSD is
aggressively sliding down towards 0.95000-0.96000. But there are no good entry
points to open short positions. Traders have to wait.
GBPUSD has
changed its pattern to the aggressive downside with targets at 1.09000-1.10000.
Considering possible stabilisation of the U.K.’s debt market these targets are
unlikely to be achieved. Nonetheless, it would be wise to wait for the market
picture to become clear and any trade signals to appear, at least by this
Friday.